UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-05597
Morgan Stanley Municipal Income Opportunities Trust
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: May 31, 2006
Date of reporting period: May 31, 2006
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley
Municipal Income Opportunities Trust performed during the annual period. We will
provide an overview of the market conditions, and discuss some of the factors
that affected performance during the reporting period. In addition, this report
includes the Fund's financial statements and a list of Fund investments.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. THE FUND IS
SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT MARKET VALUES OF
SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF THE
FUND'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE
MONEY INVESTING IN THIS FUND.
INCOME EARNED BY CERTAIN SECURITIES IN THE PORTFOLIO MAY BE SUBJECT TO THE
FEDERAL ALTERNATIVE MINIMUM TAX (AMT).
FUND REPORT
For the year ended May 31, 2006
MARKET CONDITIONS
Despite record oil prices, the Gulf Coast hurricanes and a slowdown in housing,
the pace of U.S. economic growth remained resilient during the 12 months ended
May 31, 2006. More recently, the market has focused on the change in leadership
at the Federal Reserve Board and uncertainties created by inflationary pressures
and forecasts of slower growth.
As the market had anticipated, the Federal Open Market Committee (the "Fed")
continued to raise the federal funds target rate in 25 basis point increments at
each of its eight meetings, bringing the rate to 5.00 percent as of the end of
the period. Yields on short-term (two-year) municipal bonds generally followed
the target rate and rose 95 basis points. In contrast, the yields of long-term
bonds (30-year) traded in a relatively narrow range of 4.25 to 4.65 percent
during the year. Accordingly, the slope of the municipal yield curve continued
to flatten as the difference between short-term and long-term interest rates
narrowed.
Investors' quest for yield favored lower-quality bonds over high-grade issues
and kept credit spreads relatively tight. Credit spreads measure the incremental
yield investors require to assume additional credit risk. When credit spreads
tighten, lower-rated issues typically outperform high-grade issues.
Demand for municipal bonds strengthened among individual and institutional
investors. Meanwhile, municipal bond issuance slowed significantly as the year
progressed. New issue volume was robust in late 2005, supporting a record of
more than $400 billion of underwriting for the calendar year. However, volume in
the first five months of 2006 fell by nearly 20 percent. The decline was largely
attributable to a slowdown in refundings, as rising interest rates discouraged
municipalities from refinancing debt. Improved fiscal conditions among many
state and local governments also reduced borrowing needs. The market share of
underwriting of bonds backed by insurance declined from 60 to 50 percent.
Issuers in California, Texas, New York, Florida and Illinois accounted for over
40 percent of 2006 year-to-date underwriting volume.
Declining supply and sustained demand helped municipal bonds outperform U.S.
Treasuries with comparable maturities during the period. As a result, the
relative attractiveness of tax-exempt bonds ebbed and the 30-year
municipal-to-Treasury yield ratio steadily declined from 98 to 87 percent. The
municipal-to-Treasury yield ratio measures the relative attractiveness of the
two sectors. Generally speaking, the higher the ratio, the greater the
attractiveness of municipal yields relative to Treasury yields.
PERFORMANCE ANALYSIS
For the 12-month period ended May 31, 2006, the net asset value (NAV) of Morgan
Stanley Municipal Income Opportunities Trust (OIA) moved from $8.00 to $8.02 per
share. Based on this change plus reinvestment of tax-free dividends totaling
$0.53 per share, the Fund's total NAV return was 6.75 percent. OIA's value on
the New York Stock Exchange (NYSE) moved from $7.97 to $8.76 per share during
the same period. Based on this change plus reinvestment of dividends, the Fund's
total market return was 17.04 percent. OIA's NYSE market price was at a 9.23
percent premium to its NAV. During the
2
fiscal year, the Fund purchased and retired 8,200 shares of common stock at a
weighted average market discount of 0.54 percent. Past performance is no
guarantee of future results.
Monthly dividends for the second quarter of 2006, declared in March, were
unchanged at $0.045 per share. The dividend reflects the current level of the
Fund's net investment income. OIA's level of undistributed net investment income
was $0.137 per share on May 31, 2006, versus $0.124 per share 12 months ago.(1)
All holdings were accruing interest at the end of the fiscal year.
In anticipation of continued Fed tightening and generally higher interest rates,
the Fund made modest ongoing adjustments to its portfolio to attempt to reduce
volatility. For example, a U.S. Treasury futures hedge was used to reduce the
portfolio's duration* when deemed appropriate. At the end of May, the Fund's
option-adjusted duration was 6.3 years. This duration positioning tempered the
Fund's total returns when rates declined, but helped total returns when rates
rose.
As discussed in previous reports, the Fund invests primarily in higher yielding
municipal bonds. Consistent with its focus on higher yielding securities, the
Fund's exposure to below investment grade or non-rated issues was gradually
increased to nearly three quarters of long-term assets as of the end of the
period. This security mix had a positive impact on results as high yield
municipal bonds outperformed investment grade issues. A decline in high yield
issuance, coupled with strong demand, served as catalysts for performance. In
addition, three holdings representing approximately 6 percent of net assets
appreciated significantly when they were prerefunded.
Reflecting a commitment to diversification, the Fund's net assets of
approximately $158 million were invested among 11 long-term sectors and 98
credits as of the end of the period.
OIA's procedure for reinvesting all dividends and distributions in common shares
is through purchases in the open market. This method helps support the market
value of the Fund's shares. In addition, we would like to remind you that the
Trustees of the Fund have approved a procedure whereby the Fund may, when
appropriate, purchase shares in the open market or in privately negotiated
transactions at a price not above market value or net asset value, whichever is
lower at the time of purchase.
- ----------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. INVESTMENT RETURN, NET ASSET VALUE AND COMMON SHARE MARKET PRICE WILL
FLUCTUATE AND FUND SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
There is no guarantee that any sectors mentioned will continue to perform as
discussed herein or that securities in such sectors will be held by the Fund in
the future.
(1) Income earned by certain securities in the portfolio may be subject to the
federal alternative minimum tax (AMT).
* A measure of the sensitivity of a bond's price to changes in interest rates,
expressed in years. Each year of duration represents an expected 1 percent
change in the price of a bond for every 1 percent change in interest rates. The
longer a bond's duration, the greater the effect of interest-rate movements on
its price. Typically, funds with shorter durations perform better in
rising-interest-rate environments, while funds with longer durations perform
better when rates decline.
3
<Table>
<Caption>
TOP FIVE SECTORS
Retirement & Life Care Facilities 19.2%
Tax Allocation 14.0
Hospital 12.3
IDR/PCR* 12.2
Nursing & Health Related Facilities 10.8
</Table>
<Table>
<Caption>
LONG-TERM CREDIT ANALYSIS
Aaa/AAA 1.1%
Aa/AA 5.6
A/A 2.2
Baa/BBB 16.5
Ba/BB or Less 8.8
NR 65.8
</Table>
* Industrial Development/Pollution Control Revenue
Data as of May 31, 2006. Subject to change daily. All percentages for top five
sectors are as a percentage of net assets. All percentages for long-term credit
analysis are as a percentage of total long-term investments. These data are
provided for informational purposes only and should not be deemed a
recommendation to buy or sell the securities mentioned. Morgan Stanley is a
full-service securities firm engaged in securities trading and brokerage
activities, investment banking, research and analysis, financing and financial
advisory services.
FOR MORE INFORMATION
ABOUT PORTFOLIO HOLDINGS
EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN
ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND
AND FOURTH FISCAL QUARTERS. THE SEMIANNUAL REPORTS AND THE ANNUAL REPORTS ARE
FILED ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) ON FORM
N-CSRS AND FORM N-CSR, RESPECTIVELY. MORGAN STANLEY ALSO DELIVERS THE SEMIANNUAL
AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE REPORTS AVAILABLE ON ITS
PUBLIC WEB SITE, WWW.MORGANSTANLEY.COM. EACH MORGAN STANLEY FUND ALSO FILES A
COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE FUND'S FIRST AND
THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES NOT DELIVER THE REPORTS
FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS, NOR ARE THE REPORTS
POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY, HOWEVER, OBTAIN THE FORM
N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS FILINGS) BY ACCESSING THE
SEC'S WEB SITE, HTTP://WWW.SEC.GOV. YOU MAY ALSO REVIEW AND COPY THEM AT THE
SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE OPERATION OF
THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING THE SEC AT (800)
SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE MATERIALS, UPON PAYMENT OF A
DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S E-MAIL ADDRESS
(PUBLICINFO@SEC.GOV) OR BY WRITING THE PUBLIC REFERENCE SECTION OF THE SEC,
WASHINGTON, DC 20549-0102.
4
DISTRIBUTION BY MATURITY
(% of Long-Term Portfolio) As of May 31, 2006
WEIGHTED AVERAGE MATURITY: 20 YEARS(A)
<Table>
0-5 15
6-10 8
11-15 10
16-20 9
21-25 21
26-30 28
31+ 9
</Table>
(a) Where applicable maturities reflect mandatory tender, put and call dates.
Portfolio structure is subject to change.
Geographic Summary of Investments
Based on Market Value as a Percent of Total Investments
<Table>
Alabama................. 0.7%
Arkansas................ 1.3
California.............. 4.4
Colorado................ 3.8
Connecticut............. 1.3
District of Columbia.... 0.2
Florida................. 10.2
Georgia................. 1.3
Hawaii.................. 2.5
Illinois................ 4.2
Indiana................. 0.7
Iowa.................... 2.5
Kansas.................. 1.0
Kentucky................ 0.4
Louisiana............... 0.6
Maryland................ 1.3
Massachusetts........... 2.8
Michigan................ 0.4
Minnesota............... 6.2
Missouri................ 5.9
Nevada.................. 3.5
New Hampshire........... 6.2
New Jersey.............. 5.1
New York................ 11.8%
North Carolina.......... 0.7
Ohio.................... 0.6
Pennsylvania............ 6.3
South Carolina.......... 1.0
Tennessee............... 2.8
Texas................... 4.3
Vermont................. 1.4
Virginia................ 4.8
Joint exemption*........ (0.2)
-----
Total+.................. 100.0%
=====
</Table>
- ------------------
* Joint exemptions have been included in each geographic location.
+ Does not include open short futures contracts with an underlying face amount
of $6,242,813, with unrealized appreciation of $17,647.
5
CALL AND COST (BOOK) YIELD STRUCTURE
(Based on Long-Term Portfolio) As of May 31, 2006
YEAR BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 5 YEARS
<Table>
2006(a) 14
2007 6
2008 8
2009 12
2010 4
2011 8
2012 8
2013 10
2014 7
2015 14
2016+ 9
</Table>
COST (BOOK) YIELD(B) -- WEIGHTED AVERAGE BOOK YIELD: 7.1%
<Table>
2006(a) 9.0
2007 6.8
2008 6.6
2009 6.5
2010 7.0
2011 7.1
2012 6.6
2013 6.8
2014 6.4
2015 7.4
2016+ 6.3
</Table>
(a) May include issues initially callable in previous years.
(b) Cost or "book" yield is the annual income earned on a portfolio investment
based on its original purchase price before the Fund's operating expenses.
For example, the Fund is earning a book yield of 9.0% on 14% of the
long-term portfolio that is callable in 2006.
Portfolio structure is subject to change.
6
INVESTMENT ADVISORY AGREEMENT APPROVAL
NATURE, EXTENT AND QUALITY OF SERVICES
The Board reviewed and considered the nature and extent of the investment
advisory services provided by the Investment Adviser under the Advisory
Agreement, including portfolio management, investment research and fixed income
securities trading. The Board also reviewed and considered the nature and extent
of the non-advisory, administrative services provided by the Fund's
Administrator under the Administration Agreement, including accounting,
clerical, bookkeeping, compliance, business management and planning, and the
provision of supplies, office space and utilities at the Investment Adviser's
expense. (The Investment Adviser and the Administrator together are referred to
as the "Adviser" and the Advisory and Administration Agreements together are
referred to as the "Management Agreement.") The Board also compared the nature
of the services provided by the Adviser with similar services provided by
non-affiliated advisers as reported to the Board by Lipper Inc. ("Lipper").
The Board reviewed and considered the qualifications of the portfolio managers,
the senior administrative managers and other key personnel of the Adviser who
provide the administrative and investment advisory services to the Fund. The
Board determined that the Adviser's portfolio managers and key personnel are
well qualified by education and/or training and experience to perform the
services in an efficient and professional manner. The Board concluded that the
nature and extent of the advisory and administrative services provided were
necessary and appropriate for the conduct of the business and investment
activities of the Fund. The Board also concluded that the overall quality of the
advisory and administrative services was satisfactory.
PERFORMANCE RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
On a regular basis, the Board reviews the performance of all funds in the Morgan
Stanley Fund Complex, including the Fund, compared to their peers, paying
specific attention to the underperforming funds. In addition, the Board
specifically reviewed the Fund's performance for the one-, three- and five-year
periods ended November 30, 2005, as shown in a report provided by Lipper (the
"Lipper Report"), compared to the performance of comparable funds selected by
Lipper (the "performance peer group"). The Board considered that the Fund is
unleveraged and that eight of the fifteen funds comprising the performance peer
group are leveraged funds. The Board discussed with the Adviser the performance
goals and the actual results achieved in managing the Fund and concluded that
the Fund's performance was acceptable.
7
FEES RELATIVE TO OTHER PROPRIETARY FUNDS MANAGED BY THE ADVISER WITH COMPARABLE
INVESTMENT STRATEGIES
The Board reviewed the advisory and administrative fee (together, the
"management fee") rate paid by the Fund under the Management Agreement. The
Board noted that the management fee rate was comparable to the management fee
rates charged by the Adviser to other proprietary funds it manages with
investment strategies comparable to those of the Fund.
FEES AND EXPENSES RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
The Board reviewed the management fee rate and total expense ratio of the Fund
as compared to the average management fee rate and average total expense ratio
for funds, selected by Lipper (the "expense peer group"), managed by other
advisers with investment strategies comparable to those of the Fund, as shown in
the Lipper Report. The Board concluded that the Fund's management fee rate and
total expense ratio were competitive with those of its expense peer group.
BREAKPOINTS AND ECONOMIES OF SCALE
The Board reviewed the structure of the Fund's management fee schedule under the
Management Agreement and noted that it does not include any breakpoints. The
Board considered that the Fund is a closed-end fund and, therefore, that the
Fund's assets are not likely to grow with new sales or grow significantly as a
result of capital appreciation. The Board concluded that economies of scale for
the Fund were not a factor that needed to be considered at the present time.
PROFITABILITY OF ADVISER AND AFFILIATES
The Board considered information concerning the costs incurred and profits
realized by the Adviser and affiliates during the last year from their
relationship with the Fund and during the last two years from their relationship
with the Morgan Stanley Fund Complex and reviewed with the Adviser the cost
allocation methodology used to determine the profitability of the Adviser and
affiliates. Based on its review of the information it received, the Board
concluded that the profits earned by the Adviser and affiliates were not
excessive in light of the advisory, administrative and other services provided
to the Fund.
FALL-OUT BENEFITS
The Board considered so-called "fall-out benefits" derived by the Adviser and
its affiliates from their relationship with the Fund and the Morgan Stanley Fund
Complex, such as commissions on the purchase and sale of Fund Shares and "float"
benefits derived from handling of checks for purchases and sales of Fund shares,
8
through a broker-dealer affiliate of the Adviser. The Board concluded that the
float benefits were relatively small and that the commissions were competitive
with those of other broker-dealers.
SOFT DOLLAR BENEFITS
The Board considered whether the Adviser realizes any benefits from commissions
paid to brokers who execute securities transactions for the Fund ("soft
dollars"). The Board noted that the Fund invests only in fixed income
securities, which do not generate soft dollars.
ADVISER FINANCIALLY SOUND AND FINANCIALLY CAPABLE OF MEETING THE FUND'S NEEDS
The Board considered whether the Adviser is financially sound and has the
resources necessary to perform its obligations under the Management Agreement.
The Board noted that the Adviser's operations remain profitable, although
increased expenses in recent years have reduced the Adviser's profitability. The
Board concluded that the Adviser has the financial resources necessary to
fulfill its obligations under the Management Agreement.
HISTORICAL RELATIONSHIP BETWEEN THE FUND AND THE ADVISER
The Board also reviewed and considered the historical relationship between the
Fund and the Adviser, including the organizational structure of the Adviser, the
policies and procedures formulated and adopted by the Adviser for managing the
Fund's operations and the Board's confidence in the competence and integrity of
the senior managers and key personnel of the Adviser. The Board concluded that
it is beneficial for the Fund to continue its relationship with the Adviser.
OTHER FACTORS AND CURRENT TRENDS
The Board considered the controls and procedures adopted and implemented by the
Adviser and monitored by the Fund's Chief Compliance Officer and concluded that
the conduct of business by the Adviser indicates a good faith effort on its part
to adhere to high ethical standards in the conduct of the Fund's business.
GENERAL CONCLUSION
After considering and weighing all of the above factors, the Board concluded
that it would be in the best interest of the Fund and its shareholders to
approve renewal of the Management Agreement for another year.
9
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - MAY 31, 2006
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Tax-Exempt Municipal Bonds (97.1%)
Educational Facilities Revenue (3.7%)
$ 800 ABAG Finance Authority for Nonprofit Corporations,
California, National Center for International Schools
COPs.................................................... 7.50% 05/01/11 $ 817,888
985 Bellalago Educational Facilities Benefits District,
Florida, Bellalago Charter School Ser 2004 B............ 5.80 05/01/34 1,015,240
500 Illinois Finance Authority, Fullerton Village Student
Housing Ser 2004 A...................................... 5.125 06/01/35 500,975
500 Maryland Industrial Development Financing Authority, Our
Lady of Good Counsel High School Ser 2005 A............. 6.00 05/01/35 529,505
1,000 Westchester County Industrial Development Agency, New
York, Guiding Eyes for The Blind Inc Ser 2004........... 5.375 08/01/24 1,023,840
2,000 Chattanooga Health Educational & Housing Facilities Board,
Tennessee, Student Housing Refg Ser 2005 A.............. 5.125 10/01/35 1,949,500
------------
- --------
5,836,948
5,785
------------
- --------
Hospital Revenue (12.3%)
1,000 Colbert County - Northwest Health Care Authority, Alabama,
Helen Keller Hospital Ser 2003.......................... 5.75 06/01/27 1,018,920
2,000 Baxter County, Arkansas, Baxter County Regional Hospital
Impr & Refg Ser 1999 B.................................. 5.625 09/01/28 2,034,800
2,000 Hawaii Department of Budget & Finance, Kuakini Health 2002
Ser A................................................... 6.375 07/01/32 2,157,280
1,000 Indiana Health Facility Financing Authority, Riverview
Hospital Ser 2002....................................... 6.125 08/01/31 1,061,420
600 Gaylord Hospital Financing Authority, Michigan, Otsego
Memorial Hospital Ser 2004.............................. 6.50 01/01/37 618,558
1,500 St Paul, Housing & Redevelopment Authority, Minnesota,
HealthEast Ser 2005..................................... 6.00 11/15/35 1,613,760
2,335 Henderson, Nevada, Catholic Health West 1998 Ser A........ 5.375 07/01/26 2,380,252
1,500 New Hampshire Higher Educational & Health Facilities
Authority, Littleton Hospital Assn Ser 1998 A........... 6.00 05/01/28 1,531,305
2,000 New Jersey Health Care Facilities Financing Authority,
Raritan Bay Medical Center Ser 1994..................... 7.25 07/01/27 2,048,000
955 Nassau County Industrial Development Agency, New York,
North Shore Health Ser B................................ 5.875 11/01/11 1,001,929
500 Fulton County Industrial Development Authority,
Pennsylvania, Fulton County Medical Center Ser 2006..... 5.875 07/01/31 502,195
1,000 Monroe County Hospital Authority, Pennsylvania, Pocono
Medical Center Ser 2003................................. 6.00 01/01/43 1,053,520
285 South Carolina Jobs - Economic Development Authority,
Palmetto Health Alliance Refg Ser 2003 C................ 6.875 08/01/27 326,519
</Table>
10
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - MAY 31, 2006 continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
$ 1,000 Knox County Health, Educational & Housing Facility Board,
Tennessee, Baptist Health of East Tennessee Ser 2002.... 6.50% 04/15/31 $ 1,059,630
1,000 Decatur Hospital Authority, Texas, Wise Regional Health
Ser 2004 A.............................................. 7.125 09/01/34 1,081,970
------------
- --------
19,490,058
18,675
------------
- --------
Industrial Development/Pollution Control Revenue (12.2%)
2,000 California County Tobacco Securitization Agency, Gold
County Settlement Funding Corp Ser 2006 (WI)............ 0.00 06/01/33 424,120
260 Metropolitan Washington Airports Authority, District of
Columbia & Virginia, CaterAir International Corp Ser
1991 (AMT)++............................................ 10.125 09/01/11 260,348
1,500 Iowa Finance Authority, IPSCO Inc Ser 1997 (AMT).......... 6.00 06/01/27 1,515,630
1,000 Nassau County Tobacco Settlement Corporation, New York,
Ser 2006 A-3............................................ 5.125 06/01/46 973,480
New York City Industrial Development Agency, New York,
2,000 7 World Trade Center LLC Ser 2005 A..................... 6.50 03/01/35 2,118,040
2,000 American Airlines Inc Ser 2005 (AMT).................... 7.75 08/01/31 2,246,560
1,500 TSASC Inc, New York, Tobacco Settlement Ser 2006-1........ 5.125 06/01/42 1,459,185
325 Zanesville-Muskingum County Port Authority, Ohio, Anchor
Glass Container Corp Ser 1989 B (AMT)................... 10.25 12/01/08 325,176
2,620 Carbon County Industrial Development Authority,
Pennsylvania, Panther Creek Partners Refg 2000 Ser
(AMT)................................................... 6.65 05/01/10 2,771,724
1,000 Pennsylvania Economic Development Financing Authority,
Reliant Energy Inc Ser 2001 A (AMT)..................... 6.75 12/01/36 1,064,810
1,225 Lexington County, South Carolina, Ellett Brothers Inc Refg
Ser 1988................................................ 7.50 09/01/08 1,212,909
1,000 Brazos River Authority, Texas, Texas Utilities Electric Co
Refg Ser 1999 A (AMT)................................... 7.70 04/01/33 1,168,660
1,000 Chesterfield County Industrial Development Authority,
Virginia, Virginia Electric & Power Co Ser 1985......... 5.50 10/01/09 1,015,850
2,700 Pittsylvania County Industrial Development Authority,
Virginia, Multi-Trade Pittsylvania County Ser 1994 A
(AMT)................................................... 7.45 01/01/09 2,726,676
------------
- --------
19,283,168
20,130
------------
- --------
Mortgage Revenue - Multi-Family (7.1%)
Washington County Housing & Redevelopment Authority,
3,885 Courtly Park Ser 1989 A................................. 9.75 06/15/19 3,018,995
1,165 Courtly Park Ser 1989 A (AMT)........................... 10.25 06/15/19 905,287
24,080 Courtly Park Ser 1989 B................................. 0.00 06/15/19 537,706
8,678 Courtly Park Ser 1989 B (AMT)........................... 0.00 06/15/19 193,777
</Table>
11
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - MAY 31, 2006 continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
White Bear Lake, Minnesota,
$ 3,715 White Bear Woods Apts Phase II Refg 1989 Ser A.......... 9.75% 06/15/19 $ 3,054,472
19,771 White Bear Woods Apts Phase II Refg 1989 Ser B.......... 0.00 06/15/19 441,496
3,000 Brookhaven Industrial Development Agency, New York,
Woodcrest Estates Ser 1998 A (AMT)...................... 6.375 12/01/37 3,053,249
------------
- --------
11,204,982
64,294
------------
- --------
Mortgage Revenue - Single Family (5.5%)
Colorado Housing & Finance Authority,
85 1996 Ser B (AMT)........................................ 7.65 11/01/26 85,332
530 Ser 1998 D-2 (AMT)...................................... 6.35 11/01/29 538,045
19,715 New Hampshire Housing Finance Authority, Residential 1983
Ser B................................................... 0.00 01/01/15 8,134,015
------------
- --------
8,757,392
20,330
------------
- --------
Nursing & Health Related Facilities Revenue (10.8%)
Escambia County, Florida,
4,250 Pensacola Care Development Centers Ser 1989............. 10.25 07/01/11 4,262,579
980 Pensacola Care Development Centers Ser 1989 A........... 10.25 07/01/11 982,901
1,000 Orange County Health Facilities Authority, Florida,
Westminister Community Care Services Inc Ser 1999....... 6.75 04/01/34 1,032,100
1,000 Pinellas County Health Facilities Authority, Florida, Oaks
of Clearwater Ser 2004.................................. 6.25 06/01/34 1,047,400
1,925 Iowa Health Facilities Development Financing Authority,
Care Initiatives Ser 1996............................... 9.25 07/01/25 2,293,580
515 Kentucky Economic Development Financing Authority,
AHF/Kentucky-Iowa Inc Ser 2003.......................... 6.50# 01/01/29 546,755
900 Westside Habilitation Center, Louisiana, Intermediate Care
Facility for the Mentally Retarded Refg Ser 1993........ 8.375 10/01/13 912,204
1,725 Massachusetts Development Finance Agency, New England
Center for Children Ser 1998............................ 5.875 11/01/18 1,756,464
1,000 Massachusetts Health & Educational Facilities Authority,
The Learning Center for Deaf Children Ser C............. 6.125 07/01/29 1,006,000
1,000 St Louis County Industrial Development Authority,
Missouri, Pediatric Rehabilitation Center Ser 2003 A.... 6.625 11/15/35 1,032,550
610 Mount Vernon Industrial Development Agency, New York,
Meadowview at the Wartburg Ser 1999..................... 6.00 06/01/09 621,871
1,500 Suffolk County Industrial Development Agency, New York,
Medford Hamlet Ser 2006................................. 6.375 01/01/39 1,501,470
------------
- --------
16,995,874
16,405
------------
- --------
</Table>
12
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - MAY 31, 2006 continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Recreational Facilities Revenue (4.6%)
$ 2,000 Sacramento Financing Authority, California, Convention
Center Hotel 1999 Ser A................................. 6.25% 01/01/30 $ 2,097,240
1,000 San Diego County, California, San Diego Natural History
Museum COPs............................................. 5.70 02/01/28 972,410
Mashantucket (Western) Pequot Tribe, Connecticut,
1,010 Special 1996 Ser A (a).................................. 6.40 09/01/11 1,034,957
1,000 Special 1997 Ser B (a).................................. 5.75 09/01/27 1,022,000
2,000 Austin Convention Enterprises Inc, Texas, Convention
Center Hotel Ser 2000 A................................. 6.70 01/01/32 2,112,500
------------
- --------
7,239,107
7,010
------------
- --------
Retirement & Life Care Facilities Revenue (19.2%)
500 Orange County Health Facilities Authority, Florida,
Orlando Lutheran Towers Inc Ser 2005**.................. 5.70 07/01/26 499,615
1,000 St Johns County Industrial Development Authority, Florida,
Glenmoor Ser 1999 A..................................... 8.00 01/01/30 1,070,700
1,000 Hawaii Department of Budget & Finance, Kahala Nui 2003 Ser
A....................................................... 8.00 11/15/33 1,153,880
Illinois Finance Authority,
1,000 Landing at Plymouth Ser 2005 A.......................... 6.00 05/15/37 1,030,020
1,000 Luther Oaks Ser 2006 A.................................. 6.00 08/15/39 1,022,560
1,500 Lenexa, Kansas, Lakeview Village - Southridge Ser 2002
C....................................................... 6.875 05/15/32 1,604,115
1,500 Maryland Health & Higher Educational Facilities Authority,
Mercy Ridge 2003 Ser A.................................. 6.00 04/01/35 1,577,265
1,500 Massachusetts Development Finance Agency, Loomis
Communities Ser 1999 A.................................. 5.75 07/01/23 1,516,680
1,500 Kansas City Industrial Development Agency, Missouri,
Bishop Spencer 2004 Ser A............................... 6.50 01/01/35 1,572,180
New Jersey Economic Development Authority,
1,000 Cedar Crest Village Inc Ser 2001 A...................... 7.25 11/15/31 1,084,890
1,000 Franciscan Oaks Ser 1997................................ 5.70 10/01/17 1,024,460
730 Lions Gate Ser 2005 A................................... 5.875 01/01/37 746,389
1,000 The Presbyterian Home at Montgomery Ser 2001 A.......... 6.375 11/01/31 1,040,960
2,000 United Methodist Homes of New Jersey Ser 1998........... 5.125 07/01/25 1,907,420
750 Suffolk County Industrial Development Agency, New York,
Jefferson's Ferry Ser 2006 (WI)......................... 5.00 11/01/28 744,473
1,000 North Carolina Medical Care Commission, Given Estate Ser
2003 A.................................................. 6.50 07/01/32 1,070,840
1,500 Bucks County Industrial Development Authority,
Pennsylvania, Ann's Choice Ser 2005 A................... 6.125 01/01/25 1,558,350
1,000 Chester County Health & Education Facilities Authority,
Pennsylvania, Jenner's Pond Inc Ser 2002................ 7.625 07/01/34 1,131,200
</Table>
13
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - MAY 31, 2006 continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
$ 1,000 Montgomery County Industry Development Authorty,
Pennsylvania, Whitemarsh Community Ser 2005............. 6.25% 02/01/35 $ 1,059,540
Shelby County Health, Educational & Housing Facilities
Board, Tennessee,
500 Trezevant Manor Ser 2006 A.............................. 5.75 09/01/37 496,790
750 Village at Germantown Ser 2003 A........................ 7.25 12/01/34 795,195
1,000 Houston Health Facilities Authority, Texas, Buckingham
Senior Living Community Ser 2004 A...................... 7.125 02/15/34 1,107,020
1,000 Lubbock Health Facilities Development Corporation, Texas,
Carillon Senior Lifecare Ser 2005 A..................... 6.50 07/01/26 1,009,360
2,100 Vermont Economic Development Authority, Wake Robin Corp
Ser 1999 A.............................................. 6.75 03/01/29 2,198,133
1,250 Peninsula Ports Authority of Virginia, Virginia Baptist
Homes Ser 2006 C........................................ 5.40 12/01/33 1,255,975
1,000 Virginia Beach Development Authority, Virginia,
Westminister-Canterbury Refg Ser 2005 A................. 5.25 11/01/26 1,010,690
------------
- --------
30,288,700
29,080
------------
- --------
Tax Allocation Revenue (14.0%)
500 Carlsbad Assessment District No 2002-2001, California,
Poinsettia Lane East Ser 2005 A......................... 5.20 09/02/35 500,670
1,000 San Marcos Community Facilities District #2002-01,
California, University Commons Ser 2004................. 5.95 09/01/35 1,039,760
1,000 Santa Ana Unified School District, Community Facilities
District #2004-1, California, Central Park Ser 2005..... 5.10 09/01/35 997,050
2,000 Elk Valley Public Improvement Corporation, Colorado, Ser
2001 A.................................................. 7.35 09/01/31 2,118,280
2,000 Northwest Metropolitan District #3, Colorado, Ser 2005.... 6.25 12/01/35 2,087,880
1,000 Southlands Metropolitan District #1, Colorado, Ser 2004... 7.125 12/01/34 1,097,420
2,000 Beacon Lakes Community Development District, Florida, Ser
2003 A.................................................. 6.90 05/01/35 2,175,920
1,000 Midtown Miami Community Development District, Florida,
Parking Garage Ser 2004 A............................... 6.25 05/01/37 1,085,950
1,000 Renaissance Commons Community Development District,
Florida, 2005 Ser A..................................... 5.60 05/01/36 1,022,120
2,000 Atlanta, Georgia, Eastside Ser 2005 B..................... 5.60 01/01/30 2,042,280
1,000 Bolingbrook, Illinois, Sales Tax Ser 2005................. 0.00# 01/01/24 921,660
2,000 Chicago, Illinois, Lake Shore East Ser 2002............... 6.75 12/01/32 2,148,760
725 Lincolnshire, Illinois, Service Area #1 Sedgebrook Ser
2004.................................................... 6.25 03/01/34 762,164
2,000 Des Peres, Missouri, West County Center Ser 2002.......... 5.75 04/15/20 2,035,180
1,980 Las Vegas District #808, Nevada, Summerlin Ser 2001....... 6.75 06/01/21 2,061,853
------------
- --------
22,096,947
21,205
------------
- --------
</Table>
14
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - MAY 31, 2006 continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Transportation Facilities Revenue (1.8%)
$ 1,650 Mid-Bay Bridge Authority, Florida, Sr Lien Crossover Refg
Ser 1993 A (Ambac)...................................... 5.85% 10/01/13 $ 1,742,598
1,000 Nevada Department of Business & Industry, Las Vegas
Monorail 2nd Tier Ser 2000.............................. 7.375 01/01/40 1,042,100
------------
- --------
2,784,698
2,650
------------
- --------
Refunded (5.9%)
3,850 Fenton, Missouri, Gravois Bluffs Redevelopment Ser 2001 A
Refg.................................................... 7.00 10/01/11+ 4,457,799
3,250 Suffolk County Industrial Development Agency, New York,
Jefferson's Ferry Ser 1999.............................. 7.25 11/01/09+ 3,636,945
1,000 Peninsula Ports Authority of Virginia, Virginia Baptist
Homes Ser 2003 A........................................ 7.375 12/01/13+ 1,214,520
------------
- --------
9,309,264
8,100
------------
- --------
213,664 Total Tax-Exempt Municipal Bonds (Cost $160,316,676)......................... 153,287,138
------------
- --------
Taxable Convertible Bond (0.4%)
Airlines
633 UAL Corp. (Cost $633,080) (b)............................. 5.00 02/01/21 610,922
------------
- --------
Short Term Tax-Exempt Municipal Obligations (0.8%)
600 Cuyahoga County, Ohio, University Hospital of Cleveland
Ser 1985 (Demand 06/01/06).............................. 3.56* 01/01/16 600,000
700 Geisinger Authority, Pennsylvania, Geisinger Health Ser
2000 B (Demand 06/01/06)................................ 3.56* 08/01/22 700,000
------------
- --------
1,300 Total Short-Term Tax-Exempt Municipal Obligations (Cost $1,300,000).......... 1,300,000
------------
- --------
</Table>
<Table>
$215,597 Total Investments (Cost $162,249,756) (c)(d)......................... 98.3% 155,198,060
========
Other Assets in Excess of Liabilities................................ 1.7 2,729,830
----- ------------
Net Assets........................................................... 100.0% $157,927,890
===== ============
</Table>
15
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust
PORTFOLIO OF INVESTMENTS - MAY 31, 2006 continued
- ---------------------
<Table>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
WI Security purchased on a when-issued basis.
* Current coupon of variable rate demand obligation.
** A portion of this security is physically segregated in
connection with open futures contracts in the amount of
$26,000.
+ Prerefunded to call date shown.
++ Joint exemption in locations shown.
# Security is a "step up" bond where the coupon increases on a
predetermined future date.
(a) Resale is restricted to qualified institutional investors.
(b) Taxable convertible bond issued in reorganization.
(c) Securities have been designated as collateral in an amount
equal to $7,402,395 in connection with open futures
contracts and the purchase of when-issued securities.
(d) The aggregate cost for federal income tax purposes is
$162,170,020. The aggregate gross unrealized appreciation is
$7,636,040 and the aggregate gross unrealized depreciation
is $14,608,000, resulting in net unrealized depreciation of
$6,971,960.
Bond Insurance:
- ---------------
Ambac Ambac Assurance Corporation.
</Table>
FUTURES CONTRACTS OPEN AT MAY 31, 2006:
<Table>
<Caption>
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE UNREALIZED
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE APPRECIATION
- ------------------------------------------------------------------------------------------
40 Short U.S. Treasury Note 5 $(4,144,375) $11,452
Year September 2006
20 Short U.S. Treasury Note 10 (2,098,438) 6,195
Year September 2006
-------
Total Unrealized Appreciation................... $17,647
=======
</Table>
16
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
May 31, 2006
<Table>
Assets:
Investments in securities, at value (cost $162,249,756)..... $155,198,060
Cash........................................................ 106,165
Receivable for:
Interest................................................ 2,968,660
Investments sold........................................ 1,005,000
Variation margin........................................ 15,312
Prepaid expenses and other assets........................... 19,449
------------
Total Assets............................................ 159,312,646
------------
Liabilities:
Payable for:
Investments purchased................................... 1,167,770
Investment advisory fee................................. 71,266
Administration fee...................................... 11,403
Transfer agent fee...................................... 6,198
Accrued expenses and other payables......................... 128,119
------------
Total Liabilities....................................... 1,384,756
------------
Net Assets.............................................. $157,927,890
============
Composition of Net Assets:
Paid-in-capital............................................. $173,986,180
Net unrealized depreciation................................. (7,034,049)
Accumulated undistributed net investment income............. 2,703,247
Accumulated net realized loss............................... (11,727,488)
------------
Net Assets.............................................. $157,927,890
============
Net Asset Value Per Share,
19,685,043 shares outstanding (unlimited shares authorized
of $.01 par value).......................................... $8.02
============
</Table>
17
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust
FINANCIAL STATEMENTS continued
Statement of Operations
For the year ended May 31, 2006
<Table>
Net Investment Income:
Interest Income............................................. $11,780,730
-----------
Expenses
Investment advisory fee..................................... 788,810
Administration fee.......................................... 126,210
Professional fees........................................... 69,152
Shareholder reports and notices............................. 40,191
Transfer agent fees and expenses............................ 39,042
Registration fees........................................... 13,107
Trustees' fees and expenses................................. 9,237
Custodian fees.............................................. 7,103
Other....................................................... 22,139
-----------
Total Expenses.......................................... 1,114,991
Less: expense offset........................................ (7,037)
-----------
Net Expenses............................................ 1,107,954
-----------
Net Investment Income................................... 10,672,776
-----------
Net Realized and Unrealized Gain (Loss):
Net Realized Gain (Loss) on:
Investments................................................. (13,709)
Futures contracts........................................... 43,284
-----------
Net Realized Gain....................................... 29,575
-----------
Net Change in Unrealized Appreciation/Depreciation on:
Investments................................................. 113,376
Futures contracts........................................... 17,647
-----------
Net Appreciation........................................ 131,023
-----------
Net Gain................................................ 160,598
-----------
Net Increase................................................ $10,833,374
===========
</Table>
18
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 2006 MAY 31, 2005
------------ ------------
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 10,672,776 $ 10,610,238
Net realized gain (loss).................................... 29,575 (1,978,394)
Net change in unrealized appreciation/depreciation.......... 131,023 7,868,814
------------ ------------
Net Increase............................................ 10,833,374 16,500,658
Dividends to shareholders from net investment income........ (10,435,062) (10,055,170)
Decrease from transactions in shares of beneficial
interest.................................................. (64,710) (5,116,505)
------------ ------------
Net Increase............................................ 333,602 1,328,983
Net Assets:
Beginning of period......................................... 157,594,288 156,265,305
------------ ------------
End of Period
(Including accumulated undistributed net investment income
of
$2,703,247 and $2,451,611, respectively).................... $157,927,890 $157,594,288
============ ============
</Table>
19
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - MAY 31, 2006
1. Organization and Accounting Policies
Morgan Stanley Municipal Income Opportunities Trust (the "Fund") is registered
under the Investment Company Act of 1940, as amended, as a diversified,
closed-end management investment company. The Fund's investment objective is to
provide a high level of current income which is exempt from federal income tax.
The Fund was organized as a Massachusetts business trust on June 22, 1988 and
commenced operations on September 19, 1988.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- (1) portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service uses
both a computerized grid matrix of tax-exempt securities and evaluations by its
staff, in each case based on information concerning market transactions and
quotations from dealers which reflect the mean between the last reported bid and
asked price. The portfolio securities are thus valued by reference to a
combination of transactions and quotations for the same or other securities
believed to be comparable in quality, coupon, maturity, type of issue, call
provisions, trading characteristics and other features deemed to be relevant.
The Trustees believe that timely and reliable market quotations are generally
not readily available for purposes of valuing tax-exempt securities and that the
valuations supplied by the pricing service are more likely to approximate the
fair value of such securities; (2) futures are valued at the latest sale price
on the commodities exchange on which they trade unless it is determined that
such price does not reflect their market value, in which case they will be
valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Trustees; and (3) short-term
debt securities having a maturity date of more than sixty days at time of
purchase are valued on a mark-to-market basis until sixty days prior to maturity
and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. Accounting for Investments -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily except where collection
is not expected.
C. Federal Income Tax Policy -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable and nontaxable
income to its shareholders. Accordingly, no federal income tax provision is
required.
20
Morgan Stanley Municipal Income Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - MAY 31, 2006 continued
D. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
E. Futures Contracts -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments known as
variation margin are recorded by the Fund as unrealized gains and losses. Upon
closing of the contract, the Fund realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
F. Use of Estimates -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. Investment Advisory/Administration Agreements
Pursuant to an Investment Advisory Agreement with Morgan Stanley Investment
Advisors Inc. (the "Investment Adviser"), the Fund pays an advisory fee,
calculated weekly and payable monthly, by applying the annual rate of 0.50% to
the Fund's weekly net assets.
Pursuant to an Administration Agreement with Morgan Stanley Services Company
Inc. (the "Administrator"), an affiliate of the Investment Adviser, the Fund
pays an administration fee, calculated weekly and payable monthly, by applying
the annual rate of 0.08% to the Fund's weekly net assets.
3. Security Transactions and Transactions with Affiliates
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended May 31, 2006 aggregated $29,604,852
and $31,352,075, respectively. Included in the aforementioned transactions are
purchases of $1,995,320 with other Morgan Stanley funds.
Morgan Stanley Trust, an affiliate of the Investment Adviser and Administrator,
is the Fund's transfer agent.
The Fund has an unfunded noncontributory defined benefit pension plan covering
certain independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time
21
Morgan Stanley Municipal Income Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - MAY 31, 2006 continued
of retirement. Benefits under this plan are based on factors which include years
of service and compensation. The Trustees voted to close the plan to new
participants and eliminate the future benefits growth due to increases to
compensation after July 31, 2003. Aggregate pension costs for the year ended May
31, 2006 included in Trustees' fees and expenses in the Statement of Operations
amounted to $7,493. At May 31, 2006, the Fund had an accrued pension liability
of $64,128 which is included in accrued expenses in the Statement of Assets and
Liabilities.
The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan")
which allows each independent Trustee to defer payment of all, or a portion, of
the fees he receives for serving on the Board of Trustees. Each eligible Trustee
generally may elect to have the deferred amounts credited with a return equal to
the total return on one or more of the Morgan Stanley funds that are offered as
investment options under the Compensation Plan. Appreciation/depreciation and
distributions received from these investments are recorded with an offsetting
increase/decrease in the deferred compensation obligation and do not affect the
net asset value of the Fund.
4. Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
CAPITAL
PAID IN
PAR VALUE EXCESS OF
SHARES OF SHARES PAR VALUE
---------- --------- ------------
Balance, May 31, 2004....................................... 20,379,272 $203,792 $179,376,867
Treasury shares purchased and retired (weighted average
discount 4.79%)*.......................................... (686,029) (6,860) (5,109,645)
---------- -------- ------------
Balance, May 31, 2005....................................... 19,693,243 196,932 174,267,222
Treasury shares purchased and retired (weighted average
discount 0.54%)*.......................................... (8,200) (82) (64,628)
Reclassification due to permanent book/tax differences...... -- -- (413,264)
---------- -------- ------------
Balance May 31, 2006........................................ 19,685,043 $196,850 $173,789,330
========== ======== ============
</Table>
- ---------------------
* The Trustees have voted to retire the shares purchased.
5. Dividends
The Fund declared the following dividends from net investment income:
<Table>
<Caption>
DECLARATION AMOUNT RECORD PAYABLE
DATE PER SHARE DATE DATE
- -------------- --------- ----------------- ------------------
March 28, 2006 $0.045 June 9, 2006 June 23, 2006
June 27, 2006 0.045 July 7, 2006 July 21, 2006
June 27, 2006 0.045 August 4, 2006 August 18, 2006
June 27, 2006 0.045 September 8, 2006 September 22, 2006
</Table>
22
Morgan Stanley Municipal Income Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - MAY 31, 2006 continued
6. Expense Offset
The expense offset represents a reduction of custodian and transfer agent fees
and expenses for earnings on cash balances maintained by the Fund.
7. Federal Income Tax Status
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for tax purposes are reported as distributions of paid-in-capital.
The tax character of distributions paid was as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 2006 MAY 31, 2005
------------ ------------
Tax-exempt income........................................... $10,435,062 $10,017,495
Ordinary income............................................. -- 37,675
----------- -----------
Total distributions......................................... $10,435,062 $10,055,170
=========== ===========
</Table>
23
Morgan Stanley Municipal Income Opportunities Trust
NOTES TO FINANCIAL STATEMENTS - MAY 31, 2006 continued
As of May 31, 2006, the tax-basis components of accumulated losses were as
follows:
<Table>
Undistributed tax-exempt income............................. $ 2,717,666
Retained ordinary income.................................... 31,233
------------
Net accumulated earnings.................................... 2,748,899
Capital loss carryforward*.................................. (11,456,366)
Post-October losses......................................... (253,460)
Temporary differences....................................... (125,403)
Net unrealized depreciation................................. (6,971,960)
------------
Total accumulated losses.................................... ($16,058,290)
============
</Table>
- ---------------------
* During the year ended May 31, 2006, the Fund utilized $286,855 of its net
capital loss carryforward. As of May 31, 2006, the Fund had a net capital loss
carryforward of $11,456,366 of which $87,017 will expire on May 31, 2008,
$4,628,820 will expire on May 31, 2009, $1,864,080 will expire on May 31, 2011
and $4,876,449 will expire on May 31, 2013 to offset future capital gains to the
extent provided by regulations.
As of May 31, 2006, the Fund had temporary book/tax differences primarily
attributable to post-October losses (capital losses incurred after October 31
within the taxable year which are deemed to arise on the first business day of
the Fund's next taxable year), book amortization of discounts on debt
securities, mark-to-market of open futures contracts and interest on bonds in
default and permanent book/tax differences primarily attributable to tax
adjustments on debt securities sold by the Fund and an expired capital loss
carryforward. To reflect reclassifications arising from the permanent
differences, paid-in-capital was charged $413,264, accumulated net realized loss
was credited $399,342 and accumulated undistributed net investment income was
credited $13,922.
8. Risks Relating to Certain Financial Instruments
The Fund may invest a portion of its assets in residual interest bonds, which
are inverse floating rate municipal obligations. The prices of these securities
are subject to greater market fluctuations during periods of changing prevailing
interest rates than are comparable fixed rate obligations.
To hedge against adverse interest rate changes, the Fund may invest in financial
futures contracts or municipal bond index futures contracts ("futures
contracts").
These futures contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the value of the underlying securities. Risks may also
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
24
Morgan Stanley Municipal Income Opportunities Trust
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE YEAR ENDED MAY 31
---------------------------------------------------------------------
2006 2005 2004 2003 2002
--------- --------- --------- --------- ---------
Selected Per Share Data:
Net asset value, beginning of the period.............. $8.00 $ 7.67 $ 7.91 $ 7.88 $ 8.03
----- ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income*............................ 0.54 0.53 0.52 0.54 0.55
Net realized and unrealized gain (loss)........... 0.01 0.29 (0.26) 0.04 (0.13)
----- ------ ------ ------ ------
Total income from investment operations............... 0.55 0.82 0.26 0.58 0.42
----- ------ ------ ------ ------
Less dividends from net investment income............. (0.53) (0.50) (0.50) (0.55) (0.57)
----- ------ ------ ------ ------
Anti-dilutive effect of acquiring treasury shares*.... -- 0.01 -- -- --
----- ------ ------ ------ ------
Net asset value, end of period........................ $8.02 $ 8.00 $ 7.67 $ 7.91 $ 7.88
===== ====== ====== ====== ======
Market value, end of period........................... $8.76 $ 7.97 $ 7.09 $ 7.76 $ 8.08
===== ====== ====== ====== ======
Total Return+......................................... 17.04% 20.12% (2.34)% 3.09% 1.42%
Ratios to Average Net Assets:
Total expenses (before expense offset)................ 0.71% 0.83% 0.94% 0.93%(1) 0.92%
Net investment income................................. 6.78% 6.76% 6.63% 6.85% 6.92%
Supplemental Data:
Net assets, end of period, in thousands............... $157,928 $157,594 $156,265 $164,208 $165,019
Portfolio turnover rate............................... 19% 12% 10% 8% 7%
</Table>
- ---------------------
<Table>
* The per share amounts were computed using an average number
of shares outstanding during the period.
+ Total return is based upon the current market value on the
last day of each period reported. Dividends are assumed to
be reinvested at the prices obtained under the Fund's
dividend reinvestment plan. Total return does not reflect
brokerage commissions.
(1) Does not reflect the effect of expense offset of 0.01%.
</Table>
25
See Notes to Financial Statements
Morgan Stanley Municipal Income Opportunities Trust
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Morgan Stanley Municipal Income Opportunities Trust:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Municipal Income Opportunities Trust (the "Fund"), including the
portfolio of investments, as of May 31, 2006, and the related statements of
operations for the year then ended and changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of May 31, 2006, by correspondence with the custodian and
brokers. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley Municipal Income Opportunities Trust as of May 31, 2006, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
New York, New York
July 20, 2006
26
Morgan Stanley Municipal Income Opportunities Trust
REVISED INVESTMENT POLICY (UNAUDITED)
On August 24, 2005, the Trustees of Morgan Stanley Municipal Income
Opportunities Trust (the "Fund") approved a change to the Fund's investment
policy with respect to inverse floating rate municipal obligations whereby the
Fund now would be permitted to invest up to 15% of its assets in inverse
floating rate municipal obligations. The inverse floating rate municipal
obligations in which the Fund will invest are typically created through a
division of a fixed rate municipal obligation into two separate instruments, a
short-term obligation and a long-term obligation. The interest rate on the
short-term obligation is set at periodic auctions. The interest rate on the
long-term obligation is the rate the issuer would have paid on the fixed income
obligation: (i) plus the difference between such fixed rate and the rate on the
short-term obligation, if the short-term rate is lower than the fixed rate; or
(ii) minus such difference if the interest rate on the short-term obligation is
higher than the fixed rate. The interest rates on these obligations generally
move in the reverse direction of market interest rates. If market interest rates
fall, the interest rate on the obligation will increase and if market interest
rates increase, the interest rate on the obligation will fall. Inverse floating
rate municipal obligations offer the potential for higher income than is
available from fixed rate obligations of comparable maturity and credit rating.
They also carry greater risks. In particular, the prices of inverse floating
rate municipal obligations are more volatile, i.e., they increase and decrease
in response to changes in interest rates to a greater extent than comparable
fixed rate obligations.
27
Morgan Stanley Municipal Income Opportunities Trust
SHAREHOLDER VOTING RESULTS (UNAUDITED)
On December 13, 2005, an annual meeting of the Fund's shareholders was held for
the purpose of voting on the following matter, the results of which were as
follows:
Election of Trustees:
<Table>
<Caption>
FOR WITHHELD
-----------------------------
Michael Bozic............................................... 16,440,675 312,081
Charles A. Fiumefreddo...................................... 16,467,481 285,275
James F. Higgins............................................ 16,449,913 302,843
</Table>
The following Trustees were not standing for reelection at this meeting: Edwin
J. Garn, Wayne E. Hedien, Dr. Manuel H. Johnson, Joseph J. Kearns, Michael E.
Nugent and Fergus Reid.
28
Morgan Stanley Municipal Income Opportunities Trust
TRUSTEE AND OFFICER INFORMATION
Independent Trustees:
<Table>
<Caption>
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by
Independent Trustee Registrant Time Served* Past 5 Years** Trustee***
- --------------------------------------- ----------- -------------- ------------------------------ -------------
Michael Bozic (65) Trustee Since April Private Investor; Chairman of 197
c/o Kramer Levin Naftalis & Frankel LLP 1994 the Insurance Committee (since
Counsel to the Independent Trustees July 2006) and Director or
1177 Avenue of the Americas Trustee of the Retail Funds
New York, NY 10036 (since April 1994) and the
Institutional Funds (since
July 2003); formerly Vice
Chairman of Kmart Corporation
(December 1998-October 2000),
Chairman and Chief Executive
Officer of Levitz Furniture
Corporation (November 1995-
November 1998) and President
and Chief Executive Officer of
Hills Department Stores (May
1991-July 1995); formerly
variously Chairman, Chief
Executive Officer, President
and Chief Operating Officer
(1987-1991) of the Sears
Merchandise Group of Sears,
Roebuck & Co.
Edwin J. Garn (73) Trustee Since January Consultant; Director or 197
1031 N. Chartwell Court 1993 Trustee of the Retail Funds
Salt Lake City, UT 84103 (since January 1993) and the
Institutional Funds (since
July 2003); member of the Utah
Regional Advisory Board of
Pacific Corp. (utility
company); formerly Managing
Director of Summit Ventures
LLC (2000-2004) (lobbying and
consulting firm); United
States Senator (R-Utah)
(1974-1992) and Chairman,
Senate Banking Committee
(1980-1986), Mayor of Salt
Lake City, Utah (1971-1974),
Astronaut, Space Shuttle
Discovery (April 12-19, 1985),
and Vice Chairman, Huntsman
Corporation (chemical
company).
<Caption>
Name, Age and Address of
Independent Trustee Other Directorships Held by Trustee
- --------------------------------------- -----------------------------------
Michael Bozic (65) Director of various business
c/o Kramer Levin Naftalis & Frankel LLP organizations.
Counsel to the Independent Trustees
1177 Avenue of the Americas
New York, NY 10036
Edwin J. Garn (73) Director of Franklin Covey (time
1031 N. Chartwell Court management systems), BMW Bank of
Salt Lake City, UT 84103 North America, Inc. (industrial
loan corporation), Escrow Bank USA
(industrial loan corporation);
United Space Alliance (joint
venture between Lockheed Martin and
the Boeing Company) and Nuskin Asia
Pacific (multilevel marketing);
member of the board of various
civic and charitable organizations.
</Table>
29
Morgan Stanley Municipal Income Opportunities Trust
TRUSTEE AND OFFICER INFORMATION continued
<Table>
<Caption>
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by
Independent Trustee Registrant Time Served* Past 5 Years** Trustee***
- --------------------------------------- ----------- -------------- ------------------------------ -------------
Wayne E. Hedien (72) Trustee Since Retired; Director or Trustee 197
c/o Kramer Levin Naftalis & Frankel LLP September 1997 of the Retail Funds (since
Counsel to the Independent Trustees September 1997) and the
1177 Avenue of the Americas Institutional Funds (since
New York, NY 10036 July 2003); formerly
associated with the Allstate
Companies (1966-1994), most
recently as Chairman of The
Allstate Corporation (March
1993-December 1994) and
Chairman and Chief Executive
Officer of its wholly-owned
subsidiary, Allstate Insurance
Company (July 1989-December
1994).
Dr. Manuel H. Johnson (57) Trustee Since July Senior Partner, Johnson Smick 197
c/o Johnson Smick Group, Inc. 1991 International, Inc., a
888 16th Street, NW consulting firm; Chairman of
Suite 740 the Audit Committee and
Washington, D.C. 20006 Director or Trustee of the
Retail Funds (since July 1991)
and the Institutional Funds
(since July 2003); Co-
Chairman and a founder of the
Group of Seven Council (G7C),
an international economic
commission; formerly Vice
Chairman of the Board of
Governors of the Federal
Reserve System and Assistant
Secretary of the U.S.
Treasury.
Joseph J. Kearns (63) Trustee Since July President, Kearns & Associates 198
c/o Kearns & Associates LLC 2003 LLC (investment consulting);
PMB754 Deputy Chairman of the Audit
23852 Pacific Coast Highway Committee and Director or
Malibu, CA 90265 Trustee of the Retail Funds
(since July 2003) and the
Institutional Funds (since
August 1994); previously
Chairman of the Audit
Committee of the Institutional
Funds (October 2001-July
2003); formerly CFO of the J.
Paul Getty Trust.
<Caption>
Name, Age and Address of
Independent Trustee Other Directorships Held by Trustee
- --------------------------------------- -----------------------------------
Wayne E. Hedien (72) Director of The PMI Group Inc.
c/o Kramer Levin Naftalis & Frankel LLP (private mortgage insurance);
Counsel to the Independent Trustees Trustee and Vice Chairman of The
1177 Avenue of the Americas Field Museum of Natural History;
New York, NY 10036 director of various other business
and charitable organizations.
Dr. Manuel H. Johnson (57) Director of NVR, Inc. (home
c/o Johnson Smick Group, Inc. construction); Director of KFX
888 16th Street, NW Energy; Director of RBS Greenwich
Suite 740 Capital Holdings (financial holding
Washington, D.C. 20006 company).
Joseph J. Kearns (63) Director of Electro Rent
c/o Kearns & Associates LLC Corporation (equipment leasing),
PMB754 The Ford Family Foundation, and the
23852 Pacific Coast Highway UCLA Foundation.
Malibu, CA 90265
</Table>
30
Morgan Stanley Municipal Income Opportunities Trust
TRUSTEE AND OFFICER INFORMATION continued
<Table>
<Caption>
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by
Independent Trustee Registrant Time Served* Past 5 Years** Trustee***
- --------------------------------------- ----------- -------------- ------------------------------ -------------
Michael E. Nugent (70) Chairman of Chairman of General Partner of Triumph 197
c/o Triumph Capital, L.P. the Board the Board Capital, L.P., a private
445 Park Avenue and Trustee (since July investment partnership;
New York, NY 10022 2006) and Chairman of the Board of the
Trustee (since Retail Funds and Institutional
July 1991) Funds (since July 2006) and
Director or Trustee of the
Retail Funds (since July 1991)
and the Institutional Funds
(since July 2001); formerly
Chairman of the Insurance
Committee (July 1991-July
2006) Vice President, Bankers
Trust Company and BT Capital
Corporation (1984-1988).
Fergus Reid (73) Trustee Since July Chairman of Lumelite Plastics 198
c/o Lumelite Plastics Corporation 2003 Corporation; Chairman of the
85 Charles Colman Blvd. Governance Committee and
Pawling, NY 12564 Director or Trustee of the
Retail Funds (since July 2003)
and the Institutional Funds
(since June 1992).
<Caption>
Name, Age and Address of
Independent Trustee Other Directorships Held by Trustee
- --------------------------------------- -----------------------------------
Michael E. Nugent (70) None.
c/o Triumph Capital, L.P.
445 Park Avenue
New York, NY 10022
Fergus Reid (73) Trustee and Director of certain
c/o Lumelite Plastics Corporation investment companies in the
85 Charles Colman Blvd. JPMorgan Funds complex managed by
Pawling, NY 12564 J.P. Morgan Investment Management
Inc.
</Table>
31
Morgan Stanley Municipal Income Opportunities Trust
TRUSTEE AND OFFICER INFORMATION continued
Interested Trustees:
<Table>
<Caption>
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by
Interested Trustee Registrant Time Served* Past 5 Years** Trustee***
- ------------------------------------- ----------- -------------- ------------------------------ -------------
Charles A. Fiumefreddo (73) Trustee Since July Director or Trustee of the 197
c/o Morgan Stanley Trust 1991 Retail Funds (since July 1991)
Harborside Financial Center and the Institutional Funds
Plaza Two (since July 2003); formerly
Jersey City, NJ 07311 Chairman of the Retail Funds
(July 1991-July 2006) and the
Institutional Funds (July
2003-July 2006) and Chief
Executive Officer of the
Retail Funds (until September
2002).
James F. Higgins (58) Trustee Since June Director or Trustee of the 197
c/o Morgan Stanley Trust 2000 Retail Funds (since June 2000)
Harborside Financial Center and the Institutional Funds
Plaza Two (since July 2003); Senior
Jersey City, NJ 07311 Advisor of Morgan Stanley
(since August 2000).
<Caption>
Name, Age and Address of
Interested Trustee Other Directorships Held by Trustee
- ------------------------------------- -----------------------------------
Charles A. Fiumefreddo (73) None.
c/o Morgan Stanley Trust
Harborside Financial Center
Plaza Two
Jersey City, NJ 07311
James F. Higgins (58) Director of AXA Financial, Inc. and
c/o Morgan Stanley Trust The Equitable Life Assurance
Harborside Financial Center Society of the United States
Plaza Two (financial services).
Jersey City, NJ 07311
</Table>
- ---------------------
* This is the earliest date the Trustee began serving the funds advised by
Morgan Stanley Investment Advisors Inc. (the "Investment Adviser") (the
"Retail Funds").
** The dates referenced below indicating commencement of services as
Director/Trustee for the Retail Funds and the funds advised by Morgan
Stanley Investment Management Inc. and Morgan Stanley AIP GP LP (the
"Institutional Funds") reflect the earliest date the Director/Trustee began
serving the Retail or Institutional Funds, as applicable.
*** The Fund Complex includes all open-end and closed-end funds (including all
of their portfolios) advised by the Investment Adviser and any funds that
have an investment adviser that is an affiliated person of the Investment
Adviser (including, but not limited to, Morgan Stanley Investment Management
Inc.).
32
Morgan Stanley Municipal Income Opportunities Trust
TRUSTEE AND OFFICER INFORMATION continued
Officers:
<Table>
<Caption>
Term of
Position(s) Office and
Name, Age and Address of Held with Length of
Executive Officer Registrant Time Served* Principal Occupation(s) During Past 5 Years**
- ----------------------------- --------------- -------------- ------------------------------------------------------------
Ronald E. Robison (67) President and President President (since September 2005) and Principal Executive
1221 Avenue of the Americas Principal (since Officer (since May 2003) of funds in the Fund Complex;
New York, NY 10020 Executive September President (since September 2005) and Principal Executive
Officer 2005) and Officer (since May 2003) of the Van Kampen Funds; Managing
Principal Director, Director and/or Officer of the Investment Adviser
Executive and various entities affiliated with the Investment Adviser;
Officer (since Director of Morgan Stanley SICAV (since May 2004). Formerly,
May 2003) Executive Vice President (July 2003 to September 2005) of
funds in the Fund Complex and the Van Kampen Funds;
President and Director of the Institutional Funds (March
2001 to July 2003); Chief Global Operating Officer of Morgan
Stanley Investment Management Inc.; Chief Administrative
Officer of Morgan Stanley Investment Advisors Inc.; Chief
Administrative Officer of Morgan Stanley Services Company
Inc.
J. David Germany (51) Vice President Since February Managing Director and (since December 2005) Chief Investment
Morgan Stanley Investment 2006 Officer -- Global Fixed Income of Morgan Stanley Investment
Management Ltd. Management; Managing Director and Director of Morgan Stanley
25 Cabot Square Investment Management Ltd.; Vice President (since February
Canary Wharf, London 2006) of the Retail and Institutional Funds.
United Kingdom E144QA
Dennis F. Shea (53) Vice President Since February Managing Director and (since February 2006) Chief Investment
1221 Avenue of the Americas 2006 Officer -- Global Equity of Morgan Stanley Investment
New York, NY 10020 Management; Vice President (since February 2006) of the
Retail and Institutional Funds. Formerly, Managing Director
and Director of Global Equity Research at Morgan Stanley.
Barry Fink (51) Vice President Since February Managing Director and General Counsel of Morgan Stanley
1221 Avenue of the Americas 1997 Investment Management; Managing Director of the Investment
New York, NY 10020 Adviser and various entities affiliated with the Investment
Adviser; Vice President of the Retail Funds and (since July
2003) the Institutional Funds. Formerly, Secretary, General
Counsel and/or Director of the Investment Adviser and
various entities affiliated with the Investment Adviser;
Secretary and General Counsel of the Retail Funds.
Amy R. Doberman (44) Vice President Since July Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas 2004 Management of Morgan Stanley Investment Management (since
New York, NY 10020 July 2004); Vice President of the Retail Funds and the
Institutional Funds (since July 2004); Vice President of the
Van Kampen Funds (since August 2004); Secretary (since
February 2006) and Managing Director (since July 2004) of
the Investment Adviser and various entities affiliated with
the Investment Adviser. Formerly, Managing Director and
General Counsel -- Americas, UBS Global Asset Management
(July 2000 to July 2004).
Carsten Otto (42) Chief Since October Managing Director and U.S. Director of Compliance for Morgan
1221 Avenue of the Americas Compliance 2004 Stanley Investment Management (since October 2004); Managing
New York, NY 10020 Officer Director and Chief Compliance Officer of Morgan Stanley
Investment Management. Formerly, Assistant Secretary and
Assistant General Counsel of the Retail Funds.
Stefanie V. Chang Yu (39) Vice President Since July Executive Director of the Investment Adviser and various
1221 Avenue of the Americas 2003 entities affiliated with the Investment Adviser; Vice
New York, NY 10020 President of the Retail Funds (since July 2002) and the
Institutional Funds (since December 1997). Formerly,
Secretary of various entities affiliated with the Investment
Adviser.
</Table>
33
Morgan Stanley Municipal Income Opportunities Trust
TRUSTEE AND OFFICER INFORMATION continued
<Table>
<Caption>
Term of
Position(s) Office and
Name, Age and Address of Held with Length of
Executive Officer Registrant Time Served* Principal Occupation(s) During Past 5 Years**
- ----------------------------- --------------- -------------- ------------------------------------------------------------
Francis J. Smith (40) Treasurer and Treasurer Executive Director of the Investment Adviser and various
c/o Morgan Stanley Trust Chief Financial (since July entities affiliated with the Investment Adviser; Treasurer
Harborside Financial Center Officer 2003) and and Chief Financial Officer of the Retail Funds (since July
Plaza Two Chief 2003). Formerly, Vice President of the Retail Funds
Jersey City, NJ 07311 Financial (September 2002 to July 2003).
Officer (since
September
2002)
Mary E. Mullin (39) Secretary Since July Executive Director of the Investment Adviser and various
1221 Avenue of the Americas 2003 entities affiliated with the Investment Adviser; Secretary
New York, NY 10020 of the Retail Funds (since July 2003) and the Institutional
Funds (since June 1999).
</Table>
- ---------------------
* This is the earliest date the Officer began serving the Retail Funds. Each
Officer serves an indefinite term, until his or her successor is elected.
** The dates referenced below indicating commencement of service as an Officer
for the Retail and Institutional Funds reflect the earliest date the Officer
began serving the Retail or Institutional Funds, as applicable.
In accordance with Section 303A.12(a) of the New York Stock Exchange Listed
Company Manual, the Fund's Annual CEO Certification certifying as to compliance
with NYSE's corporate governance Listing Standards was submitted to the Exchange
on January 9, 2006.
The Fund's Principal Executive Officer and Principal Financial Officer
Certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 were
filed with the Fund's N-CSR and are available on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
2006 FEDERAL TAX NOTICE (UNAUDITED)
For the year ended May 31, 2006, all of the Fund's dividends
from net investment income were exempt interest dividends,
excludable from gross income for Federal income tax purposes.
34
(This Page Intentionally Left Blank)
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid
OFFICERS
Michael E. Nugent
Chairman of the Board
Ronald E. Robison
President and Principal Executive Officer
J. David Germany
Vice President
Dennis F. Shea
Vice President
Barry Fink
Vice President
Amy R. Doberman
Vice President
Carsten Otto
Chief Compliance Officer
Stefanie V. Chang Yu
Vice President
Francis J. Smith
Treasurer and Chief Financial Officer
Mary E. Mullin
Secretary
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT ADVISER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
(c) 2006 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
Municipal Income
Opportunities Trust
Annual Report
May 31, 2006
[MORGAN STANLEY LOGO]
OIARPT-38532RPT-RA06-00596P-Y05/06
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Fund or a third
party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Fund's Code of Ethics is attached hereto as Exhibit 12 A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund's Board of Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.
2
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2006 REGISTRANT COVERED ENTITIES(1)
- ---- ---------- -------------------
AUDIT FEES................ $ 31,132 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES..... $ 531(2) $ 5,190,300(2)
TAX FEES............... $ 4,449(3) $ 2,044,491(4)
ALL OTHER FEES......... $ -- $ --
TOTAL NON-AUDIT FEES...... $ 4,980 $ 7,234,791
TOTAL..................... $ 36,112 $ 7,234,791
2005 REGISTRANT COVERED ENTITIES(1)
- ---- ---------- -------------------
AUDIT FEES................ $ 30,048 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES..... $ 540(2) $ 3,215,745(2)
TAX FEES............... $ 4,585(3) $ 24,000(4)
ALL OTHER FEES......... $ -- $ --
TOTAL NON-AUDIT FEES...... $ 5,125 $ 3,239,745
TOTAL..................... $ 35,173 $ 3,239,745
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and any
entity controlling, controlled by or under common control with the Adviser
that provides ongoing services to the Registrant.
(2) Audit-Related Fees represent assurance and related services provided that
are reasonably related to the performance of the audit of the financial
statements of the Covered Entities' and funds advised by the Adviser or its
affiliates, specifically data verification and agreed-upon procedures
related to asset securitizations and agreed-upon procedures engagements.
(3) Tax Fees represent tax compliance, tax planning and tax advice services
provided in connection with the preparation and review of the Registrant's
tax returns.
(4) Tax Fees represent tax compliance, tax planning and tax advice services
provided in connection with the review of Covered Entities' tax returns.
3
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
APPENDIX A
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED AND AMENDED JULY 23, 2004,(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.
The SEC has issued rules specifying the types of services that an independent
auditor may not provide to its audit client, as well as the audit committee's
administration of the engagement of the independent auditor. The SEC's rules
establish two different approaches to pre-approving services, which the SEC
considers to be equally valid. Proposed services either: may be pre-approved
without consideration of specific case-by-case services by the Audit Committee
("general pre-approval"); or require the specific pre-approval of the Audit
Committee or its delegate ("specific pre-approval"). The Audit Committee
believes that the combination of these two approaches in this Policy will result
in an effective and efficient procedure to pre-approve services performed by the
Independent Auditors. As set forth in this Policy, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
authority has been delegated) if it is to be provided by the Independent
Auditors. Any proposed services exceeding pre-approved cost levels or budgeted
amounts will also require specific pre-approval by the Audit Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax and All
Other services that have the general pre-approval of the Audit Committee. The
term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval from the Audit Committee. The Audit Committee will add to or
subtract from the list of general pre-approved services from time to time, based
on subsequent determinations.
- ----------
(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and
Procedures (the "Policy"), adopted as of the date above, supersedes and
replaces all prior versions that may have been adopted from time to time.
4
The purpose of this Policy is to set forth the policy and procedures by which
the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes that
implementation of the Policy will not adversely affect the Independent Auditors'
independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may delegate
either type of pre-approval authority to one or more of its members. The member
to whom such authority is delegated must report, for informational purposes
only, any pre-approval decisions to the Audit Committee at its next scheduled
meeting.
3. AUDIT SERVICES
The annual Audit services engagement terms and fees are subject to the specific
pre-approval of the Audit Committee. Audit services include the annual financial
statement audit and other procedures required to be performed by the Independent
Auditors to be able to form an opinion on the Fund's financial statements. These
other procedures include information systems and procedural reviews and testing
performed in order to understand and place reliance on the systems of internal
control, and consultations relating to the audit. The Audit Committee will
approve, if necessary, any changes in terms, conditions and fees resulting from
changes in audit scope, Fund structure or other items.
In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix B.1. All
other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
4. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements and, to the extent they are Covered Services, the Covered Entities or
that are traditionally performed by the Independent Auditors. Because the Audit
Committee believes that the provision of Audit-related services does not impair
the independence of the auditor and is consistent with the SEC's rules on
auditor independence, the Audit Committee may grant general pre-approval to
Audit-related services. Audit-related services include, among others, accounting
consultations related to accounting, financial reporting or disclosure matters
5
not classified as "Audit services"; assistance with understanding and
implementing new accounting and financial reporting guidance from rulemaking
authorities; agreed-upon or expanded audit procedures related to accounting
and/or billing records required to respond to or comply with financial,
accounting or regulatory reporting matters; and assistance with internal control
reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in Appendix B.2.
All other Audit-related services not listed in Appendix B.2 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide Tax
services to the Fund and, to the extent they are Covered Services, the Covered
Entities, such as tax compliance, tax planning and tax advice without impairing
the auditor's independence, and the SEC has stated that the Independent Auditors
may provide such services.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved the
Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
The Audit Committee has pre-approved the All Other services in Appendix B.4.
Permissible All Other services not listed in Appendix B.4 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be provided by
the Independent Auditors will be established annually by the Audit Committee.
Any proposed services exceeding these levels or amounts will require specific
pre-approval by the Audit Committee. The Audit Committee is mindful of the
overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services.
8. PROCEDURES
All requests or applications for services to be provided by the Independent
Auditors that do not require specific approval by the Audit Committee will be
submitted to the Fund's Chief Financial Officer and must include a detailed
description of the services to be
6
rendered. The Fund's Chief Financial Officer will determine whether such
services are included within the list of services that have received the general
pre-approval of the Audit Committee. The Audit Committee will be informed on a
timely basis of any such services rendered by the Independent Auditors. Requests
or applications to provide services that require specific approval by the Audit
Committee will be submitted to the Audit Committee by both the Independent
Auditors and the Fund's Chief Financial Officer, and must include a joint
statement as to whether, in their view, the request or application is consistent
with the SEC's rules on auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer to monitor
the performance of all services provided by the Independent Auditors and to
determine whether such services are in compliance with this Policy. The Fund's
Chief Financial Officer will report to the Audit Committee on a periodic basis
on the results of its monitoring. Both the Fund's Chief Financial Officer and
management will immediately report to the chairman of the Audit Committee any
breach of this Policy that comes to the attention of the Fund's Chief Financial
Officer or any member of management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an annual
basis to meet its responsibility to oversee the work of the Independent Auditors
and to assure the auditor's independence from the Fund, such as reviewing a
formal written statement from the Independent Auditors delineating all
relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:
Morgan Stanley Retail Funds
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Van Kampen Asset Management
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
7
751415.01-New York erver 7A - SW
Morgan Stanley Institutional Funds
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Advisors Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to
Covered Entities to the extent that the services are determined to have a
direct impact on the operations or financial reporting of the Registrant.
100% of such services were pre-approved by the audit committee pursuant to
the Audit Committee's pre-approval policies and procedures (attached
hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors
to the Registrant and Covered Entities is compatible with maintaining the
auditors' independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
(a) The Fund has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act whose members
are: Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson,
Joseph J. Kearns, Michael Nugent and Fergus Reid.
(b) Not applicable.
Item 6.
See Item 1.
8
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Fund invests in exclusively non-voting securities and therefore this item is
not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
FUND MANAGEMENT
PORTFOLIO MANAGEMENT. As of the date of this report, the Fund is managed by
members of the Municipal Fixed Income team. The team consists of portfolio
managers and analysts. Current members of the team jointly and primarily
responsible for the day-to-day management of the Fund's portfolio are James F.
Willison and Wayne Godlin, Managing Directors of the Investment Adviser and
Gerard J. Lian, an Executive Director of the Investment Adviser.
Mr. Willison has been associated with the Investment Adviser in an investment
management capacity since January 1980 and began managing the Fund at inception.
Mr. Godlin has been associated with the Investment Adviser in an investment
management capacity since May 1988 and began managing the Fund in October 2001.
Mr. Lian has been associated with the Investment Adviser in an investment
management capacity since December 1991 and began managing the Fund in May 2003.
The composition of the team may change without notice from time to time.
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS
The following information is as of May 31, 2006.
As of May 31, 2006, Mr. Willison managed 22 mutual funds with a total of
approximately $7.3 billion in assets; no pooled investment vehicles other than
mutual funds; and no other accounts.
As of May 31, 2006, Mr. Godlin managed five mutual funds with a total of
approximately $6.4 billion in assets; no pooled investment vehicles other than
mutual funds; and no other accounts.
As of May 31, 2006, Mr. Lian managed three mutual funds with a total of
approximately $390.9 million in assets; no pooled investment vehicles other than
mutual funds; and no other accounts.
Because the portfolio managers may manage assets for other investment companies,
pooled investment vehicles, and/or other accounts (including institutional
clients, pension plans and certain high net worth individuals), there may be an
incentive to favor one
9
client over another resulting in conflicts of interest. For instance, the
Investment Adviser may receive fees from certain accounts that are higher than
the fee it receives from the Fund, or it may receive a performance-based fee on
certain accounts. In those instances, the portfolio manager may have an
incentive to favor the higher and/or performance-based fee accounts over the
Fund. The Investment Adviser has adopted trade allocation and other policies and
procedures that it believes are reasonably designed to address these and other
conflicts of interest.
PORTFOLIO MANAGER COMPENSATION STRUCTURE
Portfolio managers receive a combination of base compensation and discretionary
compensation, comprising of a cash bonus and several deferred compensation
programs described below. The methodology used to determine portfolio manager
compensation is applied across all funds/accounts managed by the portfolio
manager.
Base salary compensation. Generally, portfolio managers receive base salary
compensation based on the level of their position with the Investment Adviser.
Discretionary compensation. In addition to base compensation, portfolio managers
may receive discretionary compensation.
Discretionary compensation can include:
- - Cash Bonus.
- - Morgan Stanley's Equity Incentive Compensation Program (EICP) awards -- a
mandatory program that defers a portion of discretionary year-end
compensation into restricted stock units or other awards based on Morgan
Stanley common stock that are subject to vesting and other conditions.
- - Investment Management Deferred Compensation Plan (IMDCP) awards -- a
mandatory program that defers a portion of discretionary year-end
compensation and notionally invests it in designated Funds advised by the
Investment Adviser or its affiliates. The award is subject to vesting and
other conditions. Portfolio managers must notionally invest a minimum of
25% to a maximum of 75% of the IMDCP deferral into a combination of the
designated open-end mutual funds they manage that are included in the IMDCP
Fund menu, which may or may not include the Fund.
- - Voluntary Deferred Compensation Plans -- voluntary programs that permit
certain employees to elect to defer a portion of their discretionary
year-end compensation and directly or notionally invest the deferred
amount: (1) across a range of designated investment Funds, including Funds
advised by the Investment Adviser or its affiliates; and/or (2) in Morgan
Stanley stock units.
10
Several factors determine discretionary compensation, which can vary by
portfolio management team and circumstances. In order of relative importance,
these factors include:
- - Investment performance. A portfolio manager's compensation is linked to the
pre-tax investment performance of the funds/accounts managed by the
portfolio manager. Investment performance is calculated for one-, three-
and five-year periods measured against a fund's/account's primary
benchmark, indices and/or peer groups where applicable. Generally, the
greatest weight is placed on the three- and five-year periods.
- - Revenues generated by the investment companies, pooled investment vehicles
and other accounts managed by the portfolio manager.
- - Contribution to the business objectives of the Investment Adviser.
- - The dollar amount of assets managed by the portfolio manager.
- - Market compensation survey research by independent third parties.
- - Other qualitative factors, such as contributions to client objectives.
- - Performance of Morgan Stanley and Morgan Stanley Investment Management, and
the overall performance of the investment team(s) of which the portfolio
manager is a member.
SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS
(1) As of May 31, 2005, the portfolio managers did not own any shares of the
Fund.
11
Item 9. Closed-End Fund Repurchases
REGISTRANT PURCHASE OF EQUITY SECURITIES
(d)
Maximum Number
(c) (or Approximate
Total Number of Dollar Value) of
(a) Total Shares (or Units) Shares (or Units)
Number of (b) Purchased as Part that May Yet Be
Shares (or Average Price of Publicly Purchased Under
Units) Paid per Announced Plans the Plans or
Period Purchased Share (or Unit) or Programs Programs
- ------ ---------- --------------- ----------------- -----------------
June 1, 2005-
June 30, 2005 -- -- N/A N/A
July 1, 2005-
July 31, 2005 -- -- N/A N/A
August 1, 2005-
August 31, 2005 -- -- N/A N/A
September 1, 2005-
September 30, 2005 -- -- N/A N/A
October 1, 2005-
October 31, 2005 -- -- N/A N/A
November 1, 2005-
November 30, 2005 8,200 $7.8905 N/A N/A
December 1, 2005 -
December 31, 2005 -- -- N/A N/A
January 1, 2006--
January 31, 2006 -- -- N/A N/A
February 1, 2006 -
February 28, 2006 -- -- N/A N/A
March 1, 2006 -
March 31, 2006 -- -- N/A N/A
April 1, 2006 -
April 30, 2006 -- -- N/A N/A
May 1, 2006 -
May 31, 2006 -- -- N/A N/A
----- ------- --- ---
Total 8,200 $7.8905 N/A N/A
===== ======= === ===
12
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient
to ensure that information required to be disclosed by the Fund in this
Form N-CSR was recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and
forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period
covered by this report that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
Item 12. Exhibits
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of
EX-99.CERT.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Municipal Income Opportunities Trust
/s/ Ronald E. Robison
- -------------------------------------
Ronald E. Robison
Principal Executive Officer
July 20, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
- -------------------------------------
Ronald E. Robison
Principal Executive Officer
July 20, 2006
/s/ Francis Smith
- -------------------------------------
Francis Smith
Principal Financial Officer
July 20, 2006
14